Cisco Said to Plan Cutting Up to 10,000 Jobs to Buoy Profit

Cisco’s international earnings have been taxed at about 5 percent since 2008, records show. Photographer: Gianluca Colla/Bloomberg

July 12 (Bloomberg) -- Cisco Systems Inc., the largest
networking-equipment company, may cut as many as 10,000 jobs, or
about 14 percent of its workforce, to revive profit growth,
according to two people familiar with the plans.

The cuts include as many as 7,000 jobs that would be
eliminated by the end of August, said the people, who asked not
to be identified because the plans aren’t final. Cisco is also
providing early-retirement packages to about 3,000 workers who
accepted buyouts, the people said.

Cisco Chief Executive Officer John Chambers is slashing
jobs and exiting less-profitable businesses as competitors such
as Juniper Networks Inc. and Hewlett-Packard Co. take market
share in Cisco’s main businesses with lower-priced, simpler
products. Sales of Cisco’s switches and routers, which made up
more than half of revenue last year, will continue to slip, said
Brian Marshall, an analyst at Gleacher & Co.

Eliminating jobs will help Cisco wring $1 billion in
savings in fiscal 2012, the company said in May. Cisco expects
costs of $500 million to $1.1 billion in the fiscal fourth
quarter as a result of the voluntary early retirement program,
it said in a quarterly filing.

“We will provide additional detail on the cost reductions,
including layoffs, on our next earnings call,” Karen Tillman, a
spokeswoman for San Jose, California-based Cisco, said in
reference to an earnings call scheduled for early August. She
declined to discuss job-cut figures.

‘Too Many Employees’

The voluntary retirement packages included one year’s pay
and medical benefits, and were offered to about 5,800 employees,
two people said.

“The revenue trajectory hasn’t been where it should be,”
Marshall, who has a “neutral” rating on the stock with a
target price of $17, said in an interview. “The company is not
staffed on an appropriate level. They simply have too many
employees.”

Cisco gained 17 cents, or 1.1 percent, to $15.60 as of 4
p.m. New York time. It has dropped 23 percent this year on the
Nasdaq Stock Market, while the Standard & Poor’s 500 Index has
risen 4.5 percent.

Analysts at Gleacher and Miller Tabak & Co. said yesterday
that the company would cut at least 5,000 jobs as part of a
turnaround effort.

Cisco’s share of worldwide switching revenue dropped 5.8
percentage points to 68.5 percent in the first quarter of 2011
from a year earlier, according to a May report from Dell’Oro
Group, a Redwood City, California-based researcher. Hewlett-Packard gained switching share in that period.

Router Losses

In global router sales, Cisco lost 6.4 percentage points to
54.2 percent of the market, while Juniper gained, Dell’Oro said.

The company aims to reinvigorate demand with an updated
version of its flagship Catalyst 6500 switches, announced today
at the Cisco Live conference in Las Vegas. The new switches are
designed to be faster and more secure, and accommodate as many
as 10,000 mobile devices from a single machine.

Cisco’s revenue is projected to rise 7 percent this year to
$43 billion, less than the 11 percent growth posted in 2010,
according to the average estimate of analysts in a Bloomberg
survey. Analysts have an average stock target price of $20.62,
Bloomberg data show.

Flip Video

Cisco said in May that it shuttered the Flip video-camera
unit and cut 550 jobs. The company may eliminate more positions
in the consumer-product unit, which makes Linksys home-networking equipment, Marshall said. Some investors have said
the company should exit consumer products entirely to focus on
traditional enterprise offerings such as routers and switches.
Cisco’s equipment is used by corporate networks and telephone
and Internet service providers to direct Web traffic.

Trimming about 5,000 jobs would reduce operating expenses
by about $1 billion annually and boost 2012 earnings by about 8
percent, Marshall said.

The company is also reorganizing management to streamline
its business and focus on areas of growth, Cisco said in May. To
speed decision making, the company organized field operations
into three geographic regions and reformed a council-style
management structure.

“You will see us leaner and more focused,” Chambers said
today at the Cisco Live conference. “We have got to be more
focused and prioritize in terms of where we are going to go.”